Your Guide to Compare Mutual Funds in India

The traditional methods we used to rely on for comparing mutual funds in terms of year cumulative return and expense ratios are no longer enough. We now need to consider market circumstances, ensure the fund's strategy and holdings align with our approach to investing and ultimately acquire a futurist outlook when measuring the risk/reward ratio for the year ahead.

Unlike the stable and continuous bull run of the previous year, investors are now dealing with a market where the global macroeconomic challenges are heightened, interest rates have been toying with risk rewards and points of economic geolocation riding on increase and decrease. The changing nature of the markets has created more unpredictable fund performance leaving investors to make riskier choices when experienced managers struggle to achieve expected returns.

[Read: Mutual Funds Sahi Hai, But Only If You Invest Wisely]

In conjunction with the dynamic movement of the markets, we have also experienced dramatic sectoral rotations. Certainly, manufacturing and infrastructure fund performance stayed protected and slightly elevated, while the technology and mid-cap stocks experienced a slowdown of economic significance.

Investors should be aware that past top performers may not be the best options moving forward. Rather than simply relying on past returns, it is important to engage with sectoral trends and economic indicators when it comes to making fund selections for 2025. Another challenge is the effect of liquidity and investor behaviour.

Sudden market price swings have led to panic selling and redemption pressures, which will affect a fund's NAV. Investors should look for funds that are stable in volatile markets, and focus on consistency and downside protection rather than high returns that may be based on unsustainable investment themes.

Why Comparing Mutual Funds is Essential

The surge in SIP flows crossing Rs 20,000 crore/month in early 2025 shows retail investors are actively investing. But without proper comparison, many may end up investing in similar or underperforming funds.

1. Market Volatility Demands a Deeper Look

The Indian stock market has been experiencing heightened volatility in 2025. NIFTY 50 and S&P BSE Sensex have seen corrections due to global macroeconomic concerns, geopolitical tensions, and inflationary pressures. Some sectors have outperformed, while others have struggled. Simply picking the top-performing fund based on past returns is a mistake investors must assess whether a fund's strategy aligns with the current and anticipated market trends.

2. Market Correction: A Key Consideration

Investors who entered the market expecting a smooth upward trajectory have had to adjust their expectations amid frequent corrections. While some sectors, such as manufacturing and defence, have seen resilience, others like IT and mid-cap stocks have faced headwinds. This unpredictable nature makes it crucial for investors to adopt a strategy that accounts for volatility rather than chasing short-term returns.

3. Beyond Returns: Risk-Adjusted Performance Matters More Than Ever

High returns look great on paper, but they mean little without understanding the risks involved. With increasing market volatility, factors like standard deviation, Sharpe ratio, and downside capture ratio should be central to fund comparison.

4. Thematic and Sectoral Funds Need Contextual Analysis

Thematic and sectoral funds such as those focused on manufacturing, infrastructure, or technology are experiencing mixed performance. Comparing these funds requires a different lens than traditional diversified equity funds. Investors need to assess sectoral growth potential, economic cycles, and government policies rather than just past NAV movements.

Quantitative Metrics: The Evolving Landscape of Fund Comparison

• Rolling Returns Over Point-to-Point Returns

  A one-year or five-year CAGR doesn't reveal much about consistency. Rolling returns help understand performance across different time frames and market cycles. For instance, comparing the 3-year rolling return of a large-cap fund with its benchmark provides insights into its stability.

• Risk Metrics: Not Just Volatility, But Drawdowns and Downside Protection

  Standard Deviation: Measures overall volatility but doesn't differentiate between good and bad volatility.

  Sortino Ratio: Unlike the Sharpe Ratio, which considers total volatility, Sortino focuses only on downside risk-ideal for investors prioritizing capital protection.

  Maximum Drawdown: Indicates the biggest fall a fund has experienced, essential in volatile markets like 2025.

• Portfolio Overlap: Are You Truly Diversified?

  Investors often unknowingly invest in multiple funds that hold the same stocks. Tools like Portfolio Overlap Analysis can help investors ensure their mutual fund choices provide real diversification rather than redundancy.

• Fund Manager's Alpha: Can They Outperform?

  In a market where passive investing is growing through ETFs and index funds, actively managed funds need to justify their higher costs. Analysing the fund manager's track record-Alpha generation, market cycle navigation, and consistency in strategy-has become crucial.

Qualitative Metrics: The Missing Piece in Mutual Fund Comparison

• Fund House Philosophy and Governance

  Investors should assess how a fund house operates-does it prioritize risk-adjusted returns, or does it chase high-growth opportunities without adequate risk mitigation? Recent regulatory changes and corporate governance scandals have reinforced the need to evaluate the fund house's credibility.

• Investment Strategy Alignment with Market Trends

  A value fund in a volatile market may offer better downside protection. A mid-cap fund when economic growth is stabilizing could provide better risk-adjusted returns. Contra funds perform better when markets correct, making them relevant in 2025's uncertain equity market.

• Expense Ratio in the Context of Performance

  A fund with a high expense ratio isn't necessarily bad if it consistently outperforms after fees. Comparing expense ratios in isolation is misleading-investors should assess if the net returns justify the cost.

• Redemption Flexibility and Liquidity

  Exit loads, lock-in periods (in ELSS funds), and liquidity conditions matter, especially in uncertain economic times. Investors should evaluate how easily they can redeem their investments if market conditions change.

Mutual Fund Screener to the Rescue

One useful tool that simplifies the comparison process is a Mutual Fund Screener. It allows investors to compare multiple schemes across key parameters such as returns over various time frames, expense ratios, risk ratios (like Sharpe and Standard Deviation), fund category averages, and more.

PersonalFN's Mutual Fund Screener is an easy-to-understand layout and focuses on long-term performance consistency, which helps investors make data-backed decisions rather than relying on short-term trends or hearsay.

Its intuitive layout makes it easier to identify consistent performers and filter out underachievers at a glance.

[Read: Screener For Mutual Funds: What Is It and How It Helps in Fund Selection?]

With the market regulator SEBI tightening norms around scheme categorization, risk disclosures, and expense structures, the tools and data for meaningful comparison are now easily accessible. Yet, many investors still base decisions on word-of-mouth or recent performance alone.

In a market where thematic NFOs like energy, consumption, and manufacturing are booming, it's vital to assess whether these funds truly add diversification or just overlap with existing holdings.

Moreover, with SIP flows at record highs, it's important to ensure that new investments are aligned with your goals, risk tolerance, and time horizon not just based on what's trending. Comparing funds periodically can help weed out underperformers, rebalance your portfolio, and ensure you stay on track toward your financial objectives.

To sum up, comparing mutual funds isn't just about returns it's about consistency, cost, risk management, and suitability. In a maturing Indian mutual fund market, the investors who spend time on research and make informed comparisons are more likely to build wealth steadily and sustainably over the long term.

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Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.